STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2016

Transcription

1 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2016

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3 INTRODUCTORY SECTION

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5 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2016 TABLE OF CONTENTS Exhibit Page INTRODUCTORY SECTION 1 Table of Contents 3 Official Roster FINANCIAL SECTION Independent Auditor s Report 7-9 Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Government-wide Financial Statements: Statement of Net Position A-1 19 Statement of Revenues, Expenditures, and Changes in Net Position A-2 21 Statement of Cash Flows A-3 23 Notes to Financial Statements Schedule SUPPLEMENTARY INFROMATION Schedule of Revenues, Expenses and Changes in Fund Balance Budget and Actual Proprietary Fund A-4 49 REQUIRED SUPPLEMENTARY INFORMATION Pension Liability Schedule of the District s Proportionate Share of the Net Pension Liability of PERA Fund Division General 53 Schedule of the District s Contributions 55 Notes to the Required Supplementary Information 57 OTHER SUPPLEMENTAL INFORMATION Schedule of Pledged Collateral I 61 Schedule of Deposits & Investments II 63 Cash Reconciliation III 65 Schedule of Vendor Information IV 67 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an audit of Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Findings and Responses V 73 Other disclosures VI 75 1

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7 Name STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT OFFICIAL ROSTER June 30, 2016 GOVERNING BOARD Title F. R. Bob Romero Chairman Gabriel Romero Vice-Chairman Meliton Struck Anselmo Chemo Valerio Mario Barela Secretary Treasurer Member Administrative Official Melene Montano Business Manager 3

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9 FINANCIAL SECTION 5

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11 Timothy M. Keller New Mexico State Auditor Office of Management and Budget and Board of Directors El Valle De Los Ranchos Water & Sanitation District Ranchos de Taos, New Mexico Report on Financial Statements INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the business-type activities of El Valle de Los Ranchos Water & Sanitation District (the District ) as of and for the year ended June 30, 2016, and the related notes to the financial statements which collectively comprise El Valle de Los Ranchos Water & Sanitation District basic financial statements as listed in the table of contents. We also have audited the budgetary comparison for the proprietary fund presented as supplementary information, as defined by the Government Accounting Standards Board, in the accompanying combining and individual fund financial statements as of and for the year ended June 30, 2016, as listed in the table of contents. We did not audit the 2016 Schedule of Employer Allocations and Pension Amounts of the State of New Mexico Public Employees Retirement Association (PERA), the administrator of the cost sharing pension plan for District. The schedules and statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the District, is based solely on the report of the other auditors. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud of error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to El Valle de Los Ranchos Water & Sanitation District s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness El Valle de Los Ranchos Water & Sanitation District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our report and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the budgetary comparison of El Valle de Los Ranchos Water & Sanitation District, as of June 30, 2016, and the respective changes in financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. 7

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13 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 11-16, the Schedule of Proportionate Share of the Net Pension Liability on page 51, the Schedule of Contributions on page 53, and the notes to the required supplementary information on page 55 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with the auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on El Valle de Los Ranchos Water & Sanitation District s financial statements and the budgetary comparisons. The other schedules as required by NMAC are presented for the purposes of additional analysis and are not a required part of the basic financial statements. The other schedules required by NMAC are the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statement and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other schedules as required by NMAC are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Schedule of Vendor Information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 15, 2016 on our consideration of the El Valle de Los Ranchos Water & Sanitation District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering El Valle de Los Ranchos Water & Sanitation District s internal control over financial reporting and compliance. Precision Accounting, LLC Albuquerque, New Mexico August 15,

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15 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 As management of El Valle de Los Ranchos Water & Sanitation District (the District ) we offer readers of the District s financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with the financial statements of the District and additional information provided. FINANCIAL HIGHLIGHTS The assets of the District exceeded its liabilities at the close of the most recent fiscal year by $7,412,644 (net position). This entire amount is to be used to meet the District s ongoing obligations to citizens and creditors and construct the water and wastewater systems. The District s total net position increased by $88,190 during the fiscal year. The change is due to an increase in operating services and a decrease in intergovernmental grants. The District s total debt increased by $716,814 during the current fiscal year. The District repaid $167,496 in funds from issuance of revenue bonds, which were issued to continue with the design and construction of the system. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District s basic financial statements. The District s basic financial statements comprise two components: 1) government-wide financial statements (entire fund) and 2) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide Statements. The government-wide financial statements are designed to provide readers with a broad overview of the District s finances, in a manner similar to a private-sector business. The balance sheet presents information on all of the District s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The statements of revenues, expenses and changes in net position presents information showing how the District s net position changed during the most recent fiscal year. Both of the government-wide financial statements distinguish functions of the District that are principally supported by taxes and intergovernmental revenues from other functions that are intended to recover all or a significant portion of their costs. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, maintains only one enterprise fund for its operations. 11

16 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 Proprietary funds. Proprietary funds are generally used to account for sewer or water services for which the District charges its customers. All activity was accounted for in one fund. The District maintains one type of proprietary fund. Enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The District uses enterprise funds to account for the operations of the water and sanitation operations of the District. The enterprise fund is considered to be the only major fund of the District. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Analysis of Net Position As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of El Valle de Los Ranchos Water & Sanitation District, assets exceeded liabilities by $7,412,645 at the close of the current fiscal year Business-type Activities 2015 Business-type Activities Assets Current and other assets $ 838,719 $ 527,575 Capital assets, net of accumulated depreciation 10,332,611 9,905,081 Deferred outflows of resources 10,238 10,789 Total Assets 11,181,568 10,443,445 Liabilities Long-term liabilities outstanding $ 3,251,022 $ 2,662,366 Other liabilities 514, ,668 Total Liabilities 3,765,413 2,760,081 Deferred Inflows of resources 3, ,957 Net Position Invested in capital assets, net of related debt 7,155,375 7,277,163 Reserved for capital projects 257,270 47,291 Total Net Position 7,412,645 7,324,454 Total Liabilities, Deferred Inflows of resources, and Net Position $ 11,181,568 $ 10,443,445 All of the District s Net Position represents resources that are subject to restrictions. The restrictions are reserved to construct the water and sanitation system. 12

17 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 As of June 30, 2016, El Valle had current assets of $606,098, an increase of $78,523 over the prior year balance of $527,575. Capital assets, net of accumulated depreciation, increased over the prior year due to additions in utility plant in service and water rights (net of accumulated depreciation). The increase was $427,530 for an end of year balance of $10,332,611. Changes in Net Position 2016 Business-type Activities 2015 Business-type Activities Revenues Operation revenues: Charges for services $ 282,669 $ 301,679 Non-operating revenues: Property taxes 792, ,054 Intergovernmental - 1,101,837 Interest income 5,338 5,331 Gross receipts tax 39,450 40,337 Total revenues 1,119,878 2,063,238 Expenses Administration fees 7,762 6,141 Advertising 5,553 5,839 Books, dues & registration 2,982 1,763 Depreciation 386, ,694 Employee salaries 125, ,921 Field supplies 3,985 3,811 Insurance 7,349 6,995 Interest 92,384 98,139 Mileage and per diem 14,642 15,206 Miscellaneous expense 2,708 2,652 Office expenses 4,674 3,720 Other contractual services 97, ,879 Payroll related expenses 58,648 45,750 Postage & freight 4,238 5,988 Rent 3,729 3,702 Repair & maintenance 3,380 2,905 Service fees 197, ,689 Utilities 10,604 10,001 Total expenses 1,031, ,986 Increase in net position 88,190 1,073,252 Net position, beginning of year 7,324,454 6,308,778 Restatement - (129,576) Ending net position $ 7,412,644 $ 7,324,454 13

18 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 Long term liabilities increased by $549,318 which was the net amount of new debt less principal payments made during the year. Other liabilities increased by $88,101 with an ending balance of $281,769. At June 30, 2016, the net position of El Valle totaled $7,412,644, which was an increase of $88,190 over prior year net position of $7,324,454. Revenues for the year ending June 30, 2016 were less than the prior year by $943,360. The change was in intergovernmental grants, which decreased by $1,101,837. Total expenditures increased by $41,702 comparable to prior year s expenditures. FINANCIAL ANALYSIS OF THE DISTRICT S FUND As noted earlier, El Valle de Los Ranchos Water & Sanitation District uses fund accounting to ensure and demonstrated compliance with finance-related legal requirements. Proprietary Funds. The District s proprietary fund provides the same type of information found in the governmentalwide financial statements, but in more detail. Budgetary Highlights The State of New Mexico budget process is defined under state law and regulation. To enhance the process of developing a budget at the District level, El Valle de Los Ranchos utilizes goals and objectives defined by the Board of Directors, community input meetings, long term plans for water and wastewater system development and input from professional and non-professional staff to develop the District budget. District priorities are well defined through this process. GASB Statement No. 34 does not require a statement presenting the overall result of the budget for each year; however, all major budgetary funds are required to be reported as a separate statement. The District s final budget differs from the original budget due to budget increases and decreases that were made during the fiscal year. The total budget did change by approximately $12,025. During the year, actual operating revenues were higher than budgetary estimates by $23,606. This is a difference of 1%, which was expected in the budget process. 14

19 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 Capital Asset and Debt Administration Capital assets. El Valle de Los Ranchos Water & Sanitation District s capital assets for its business-type activities as of June 30, 2016 amount to $10,332,611 (net of accumulated depreciation). Capital assets include furniture, fixture & equipment, vehicles, utility plant in service, and water rights. The total increase in the District s capital assets (excluding accumulated depreciation) for the current fiscal year was $427,530 which consisted of additions to the utility plan in service and water rights. Capital Assets, Net of Depreciation June 30, 2016 and Business-type Activities 2015 Business-type Activities Land $ 100,000 $ 100,000 Water Rights 379,758 1,772,235 Furniture, fixtures & equipment 17,249 17,249 Buildings 641, ,308 Vehicles 22,178 22,178 Utility plant in service-water 1,450,902 Utility plant in service- Sewer 10,511,212 9,755,750 Total capital assets 13,122,607 12,308,720 Accumulated Depreciation (2,789,996) (2,403,639) Capital assets, net of accumulated depreciation $ 10,332,611 $ 9,905,081 For government-wide financial statement presentation, all depreciable capital assets were depreciated from acquisition date to the end of the current fiscal year. See Note 6 in the accompanying Notes to the Financial Statements for further information regarding capital assets. Debt Administration. At the end of the current fiscal year, the District had total debt obligations outstanding of $3,181,399. The debt consists of revenue bonds along with ten loans payable, and long-term accrued compensated absences. Changes to long term debt during the year included principal payments of $144, Business-type Activities 2015 Business-type Activities General obligation bonds $ 634,000 $ 699,000 Loan payable-nmed 351, ,625 Loan payable-usda 372, ,100 Loan payable-water Trust Board - 2,992 RUS Bonds payable 606, ,898 Loan payable-nmed Ph. 2B 394, ,303 Loan payable-nmfa Water Line 100, ,000 Loan Payable- NMFA 7,053 - Loan payable- NMED CWSR 672,275 - Loan Payable- NMED Water Line 3B 38,692 - Accrued Compensated absence 4,162 4,055 $ 3,181,399 $ 2,631,973 See note 8 in the accompanying Notes to the Financial Statements for further information regarding El Valle de Los Ranchos Water & Sanitation District s long-term debt. 15

20 El Valle de Los Ranchos Water & Sanitation District Management s Discussion and Analysis June 30, 2016 FUTURE TRENDS The District has fully expended all grants from the State of New Mexico by the end of FY REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of El Valle de Los Ranchos Water & Sanitation District s finances for all of those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to El Valle de Los Ranchos Water & Sanitation District, P.O. Box 2797, Ranchos de Taos, New Mexico 87557; (575)

21 BASIC FINANCIAL STATEMENTS 17

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23 STATE OF NEW MEXICO Exhibit A-1 El Valle De Los Ranchos Water and Sanitation District Statement of Net Position June 30, 2016 ASSETS Current assets: Cash and cash equivalents $ 389,041 Investments 20,823 Accounts receivable-customers, net of allowance of uncollectible accounts $3,506 30,231 Accounts receivable-property taxes 249,763 Accounts receivable- grants 129,256 Accounts receivable-other 19,605 Total current assets 838,719 Capital assets: Land 100,000 Water Rights 379,758 Building 641,308 Equipment & Vehicles 39,427 Plant in Service Water 1,450,902 Utility plant in service 10,511,212 Total capital assets 13,122,607 Less accumulated depreciation (2,789,996) Net capital assets 10,332,611 DEFERRED OUTFLOWS OF RESOURCES Post Measurement Contributions for Net Pension Liability 10,238 Total Assets $ 11,181,568 LIABILITIES Current liabilities: Accounts payable $ 160,980 Accrued interest 12,506 Payroll liabilities 13,284 Unearned revenue 28,000 Accrued compensated absences - Current portion of long-term debt 228,882 Total Current Liabilities 443,652 Non-current liabilities: Accrued compensated absences-long-term 4,162 Note payable 1,815,284 Bonds payable 1,133,069 Net Pension Liability 136,625 Total long-term liabilities 3,089,140 Total liabilities 3,532,792 DEFERRED INFLOWS OF RESOURCES Delinquent Property Taxes 232,621 Investment Experience for Net Pension Liability 3,026 Investment Experience for Net Pension Liability 432 Change in Assumptions for Net Pension Liability 53 Total deferred inflows of resources 236,132 Total liabilities and deferred inflows of resources 3,768,924 NET POSITION Net investment in capital assets 7,155,376 Unrestricted 257,268 Total net position 7,412,644 Total Liabilties, Deferred inflows of resources and Net Position $ 11,181, The accompanying notes are an integral part of these financial statements

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25 STATE OF NEW MEXICO El Valle de Los Ranchos Water and Sanitation District Statement of Revenues, Expenses - and Changes in Net Position Year Ended June 30, 2016 Exhibit A-2 Operating revenues: Fees and charges $ 279,870 Miscellaneous operating income 2,799 Total operating revenues 282,669 Operating expenses: Administration fees 7,762 Advertising 5,553 Books, dues & registration 2,982 Depreciation 386,357 Employee salaries 125,920 Field supplies 3,985 Insurance 7,349 Interest 92,384 Miscellaneous expense 2,708 Mileage & per diem 14,642 Office expenses 4,674 Other contractual services 97,028 Payroll related expenses 58,648 Rent 3,729 Repairs & maintenance 5,177 Postage & freight 4,238 Service fees 197,948 Utilities 10,604 Total operating expenses 1,031,688 Operating income (loss) (749,019) Non-operating revenues: Gross receipts taxes 39,450 Property taxes 792,421 Intergovernmental grants-federal passed through the state - Interest income 5,338 Non-operating revenue 837,209 Net income 88,190 Net position, beginning of year 7,324,454 Net position, at end of year $ 7,412, The accompanying notes are an integral part of these financial statements

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27 STATE OF NEW MEXICO El Valle de Los Ranchos Water and Sanitation District Statement of Cash Flows For the Year Ended June 30, 2016 Exhibit A-3 Cash flows from operating activities: Cash received from grantors and customers $ 279,870 Cash paid to suppliers and employees (1,032,684) Non-exchange taxes assessed 792,421 Other revenues 5,338 Net cash flows provided by operating activities $ 44,945 Cash flows from investing activities: Increase in plant in service, net (427,529) Net cash flows used by investing activities (427,529) Cash flows from financing activities: Borrowings on long term debt 716,814 Payments on long-term debt (128,826) Net cash flows provided by financing activities 587,988 Net increase in cash and cash equivalents 205,404 Cash and cash equivalents, beginning of year 204,460 Cash and cash equivalents, end of year $ 409,864 Reconciliation of change in net positioin to net cash provided by operating activities: Operating income (loss) $ (749,019) Adjustment to reconcile change in net position to net cash provided by operating activities: Gross receipts taxes 39,450 Property taxes 792,421 Intergovernmental grants - Interest income 5,338 Net Income 88,190 Decrease (Increase) in: Accounts receivable 256,137 Grants Receivable (129,256) Prepaid assets - Increase (Decrease) in: Accounts payable 85,263 Unearned revenue 151 Deferred Property Taxes (257,446) Payroll liabilities 3,102 Accrued expenses (1,196) Net cash provided by operating activities $ 44, The accompanying notes are an integral part of these financial statements

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29 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES El Valle de Los Ranchos Water & Sanitation District (the District) is a political sub-division of the State of New Mexico that was authorized by the District Court for Taos County in The District is engaged in the development of a water and sanitation district for the El Valle de Los Ranchos area in Northern New Mexico. The District is in phase 2 of its wastewater system. It has not begun construction on the water distribution system but is seeking funding to do so. The current phase is the construction of the system. The District has issued sewer revenue bonds with Rural Utilities Services (RUS) as the registered owner to fund construction of the system. See Note 7 for more details. The District started serving customers in November 2004 and presently has about 680 customers. The Board consists of five members elected by the qualified voters for four year terms. The Board appoints qualified personnel to guide and direct the operations of the District. The Board also approves all major contracts, capital outlay, and other decisions involving the District. The financial statements of El Valle de Los Ranchos Water & Sanitation District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The operations of the District are accounted for in one fund. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes GAAP for governmental units. A. Reporting Entity In evaluating how to define the District, for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in GASB statement no. 61. The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organization if its officials appoint a voting majority of an organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, or activities of, or the level of services performed or provided by, the organization. A financial benefit or burden relationship exists if the primary government: 1. Is entitled to the organization s resources; 2. Is legally obligated or has otherwise assumed the obligation to financial the deficits of, or provide financial support to the organization; or 3. Is obligated in some manner for the debt of the organization. 25

30 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued A. Reporting Entity (continued) Some organizations are included as component units because of their fiscal dependency on the primary government. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government. The El Valle de Los Ranchos Water & Sanitation District did not have any component units during the fiscal year ended June 30, B. Business-Type Activities The government-wide financial statements (i.e. the Statement of Net Position and the Statement of Activities and Changes in Net Position) report information on all of the non-fiduciary activities of the primary government. Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The Statement of Net Position and the Statement of Activities were prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from non-exchange transactions are recognized in accordance with the requirements of GASB Statement No. 33, Accounting and Financial Reporting for Non-exchange Transactions. The Statement of Activities demonstrates the degree to which the direct expense of a given function or segments is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirement of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. Property taxes are recognized as revenues in the year for which they are levied. 26

31 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued D. Measurement Focus, Basis of Accounting and Financial Statement Presentation The proprietary fund is accounted for using the accrual basis of accounting. The revenues are recognized when they are earned, and the expenses are recognized when they are incurred. Billed water and sanitation services receivable are recorded at year-end once operations begin. Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Sales and use taxes are classified as derived tax revenues and are recognized as revenue when the underlying exchange takes place and the revenues are measurable and available. Grants and similar items are recognized as revenue items are considered to be measurable and available only when cash is received by the government. Amounts reported as program revenues are charges to customers who purchase or use or directly benefit from the goods or services provided by the District. The proprietary fund is accounted for on a cost of services of capital maintenance measurement focus. This means that all assets and all liabilities (whether current or non-current) associated with their activity are included on their balance sheets. Their reported fund equity (net total position) is segregated into contributed capital and net position components. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in net total position. Private-sector standards of accounting and financial reporting are now included in GASB guidance from the Accounting Codification Standards. The District reports its proprietary fund as a major governmental fund. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, then unrestricted resources as they are needed. Proprietary fund distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with the fund s principal ongoing operations. The principal operating revenue of the District s enterprise fund is charges for water and wastewater services. Operating expenses for enterprise funds include the cost of services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 27

32 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 E. Assets, Liabilities and Net Position or Equity Cash and Temporary Investments: The District s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the District to invest in Certificates of Deposit, obligations of the U.S. Government, and the State Treasurer s Investment Pool. Investments for the District are reported at fair value. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties. The State Treasurer s Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares. Accounts Receivable: All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. The receivables due at June 30, 2016 consist of customer water and sewer fees, and property taxes collected by Taos County and other receivables. All receivables are considered current and collectible. Property taxes are levied on November 1 based on the assessed value of property as listed on the previous January 1 and are due in two payments by November 10 th and April 10 th. The taxes are an enforceable lien on the property. Prepaid Items: Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and proprietary financial statements. Capital Assets: Capital assets, which include property, plant, computer software, and equipment are reported in the applicable governmental column in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. No interest was included as part of the cost of capital assets under construction. Property, plant, and equipment of the primary government are depreciated using the straight line method over the following estimated useful lives: Assets Permanent Buildings Land Improvements Furniture & Equipment Utility Plant in Service Years

33 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 E. Assets, Liabilities and Net Position or Equity (continued) Unearned Revenues: The District recognizes grant revenue at the time the related expense is made if the expenditure of funds is the prime factor for determining eligibility for reimbursement; therefore, amounts received and not expended in the Special Revenue Funds are shown as unearned revenues. Amounts receivable from the property taxes levied for the current year that are not considered to be available under the current financial resources measurement focus are reported as unearned revenues in the governmental fund financial statements. Deferred Inflows/Outflows of Resources: GASB 63 amended previous guidance on deferred revenues in the Government-Wide Financial Statements to include deferred outflow of resources, which is the consumption of net assets by the government that is applicable to a future reporting period and deferred inflow of resources, which is acquisition of nets assets by the government that is applicable to a future reporting period. Compensated Absences: Full time employees of the District are entitled to accumulate vacation and sick leave. Leave is granted according to a graduated leave schedule, depending on length of service, the employee s hire date and the employee s employment status. Only eighty (80) hours of annual leave per year can be carried over from one fiscal year to the next. Upon termination, employees will be paid for accrued annual leave, but not for sick leave. Vested or accumulated vacation and sick leave that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. In prior years, substantially all of the related expenditures have been liquidated by the general fund. Amounts of vested or accumulated vacation and sick leave that are not expected to be liquidated with expendable available financial resources are reported in the government-wide statement of Net Position. Long-term Obligations: In the government-wide fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statements of Net Position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Net Position: In the fund financial statements, governmental funds report reservations of Net Position that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of Net Position represent tentative management plans that are subject to change. Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates affecting the District s financial statements include management s estimate of the useful lives of capital assets. 29

34 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 E. Assets, Liabilities and Net Position or Equity (continued) Pensions. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the New Mexico Public Employees Retirement Association (PERA) and additions to/deductions from PERA s fiduciary net position have been determined on the same basis as they are reported by PERA, on the economic resources measurement focus and accrual basis of accounting. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. F. Advertising Advertising costs are expenses as incurred. Advertising costs for the year ended June 30, 2016 were $5,553. NOTE 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets and Budgetary Accounting The budget for the Enterprise Fund is prepared by management and is approved by the Board of Directors. These budgets are prepared on the GAAP accrual basis, and secure appropriation of funds for only one year. Carryover funds must be re-appropriated in the budget of the subsequent fiscal year. Actual expenditure may not exceed the budget on a per fund basis, i.e., total budgeted expenditure must be within total budgeted amounts. Budgets may be amended in two ways. If a budget transfer is necessary within a major category called a resolution, this may be accomplished with only Board of Directors approval. The budgetary information presented in these financial statements has been amended in accordance with the above procedures. The District follows these procedures in establishing the budgetary data reflected in the financial statements: 1. On or before July 1 of each year, the Board of Directors, approves and certifies to the estimated operating budgets for use by the local board pending final approval from the State of New Mexico. 2. The State of New Mexico approves the budget for the District to utilize during the year. 3. Budget adjustments may be made during the year. The Board of Directors approves budget resolutions to increase or decrease revenue and/or expenditure line items during the year. Federal Projects Federal categorical grants are budgeted on the grant s project year rather than the District s fiscal year and, therefore, may not reflect cash basis budgeting. Unexpended portions of prior year s programs are re-budgeted into the subsequent year s program budget. Since the programs are incomplete at June 30, the schedules of budgeted and actual revenue and expenditures present unrealized revenue and expended budget, rather than budget saving. 30

35 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 3. DEPOSITS AND INVESTMENTS State statutes authorize the investment of District s funds in a wide variety of instruments including certificates of deposit and other similar obligations, state investment pool, money market accounts, and United States Government obligations. All invested funds of the District properly followed state investment requirements as of June 30, Deposits of funds may be made in interest or non-interest bearing checking accounts in one or more banks or savings and loan associations within the geographical boundaries of the District. Deposits may be made to the extent that they are insured by an agency of the United States or by collateral deposited as security or by bond given by the financial institution. The rate of interest in non-demand interesting-bearing accounts shall be set by the State Board of Finance, but in no case shall the rate of interest be less than one hundred percent of the asked price on United States treasury bills of the same maturity on the day of deposit. Excess of funds may be temporarily invested in securities which are issued by the State or by the United States government, or by their departments or agencies, and which are either direct obligations of the State or the United States or are backed by the full faith and credit of those governments. The collateral pledged is listed on Schedule I of this report. The types of collateral allowed are limited to direct obligations of the United States Government and all bonds issued by an agency, District or political subdivision of the State of New Mexico. According to the Federal Deposit Insurance Corporation, public unit deposits are funds owned by the public unit. Time deposits, savings deposits and interest bearing NOW accounts of a public unit in an institution in the same state will be insured up to $250,000 in aggregate and separate from the $250,000 coverage for public unit demand deposits at the same institution. All of the investments of El Valle de Los Ranchos Water & Sanitation District at June 30, 2016, were in short-term investments with a maturity date within a year of the date acquired by the District or in the State Treasurer s pooled investments. The investments are stated at cost, which also approximates market value. The District s practice is to limit deposits and investments to insured and collateralized time accounts and certificates of deposit with a maturity of less than one year. 31

36 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 3. DEPOSITS AND INVESTMENTS, continued Deposits New Mexico state statutes require collateral pledged for deposits in excess of the federal deposit insurance to be delivered, or a joint safekeeping receipts be issued, to the District for a least one half of the uninsured amount on deposit with the institution. The schedule listed below will meet the State of New Mexico, Office of the State Auditor s requirements in reporting the insured portion of the deposits. People's Bank Total amounts of deposits $ 391,584 FDIC coverage (278,943) Total uninsured public funds $ 112,642 Collateral requirement (50% of uninsured public funds) $ 56,321 Pledged Collateral held by pledging bank's trust department or agent but not in the agency's name 123,556 Total under (over) collateralized $ (67,235) Custodial credit risk-uninsured deposits $ - Custodial Credit Risk Deposits. Custodial credit risk is the risk that in the event of a bank failure, the government s deposits may not be returned to it. The government does not have a deposit policy for custodial credit risk, other than following states statutes as put forth in the Public Money Act (Section to , NMSA 1978). At June 30, 2016, $112,642 of the District s bank balance of $391,584 was exposed to custodial credit risk because $112,642 was uninsured and the collateral was held by the pledging bank s trust department, not in the District s name. At June 30, 2016, the carrying amount of these deposits was $388,741 as shown on the next page. Investments As of June 30, 2016, the District had the following investments and maturities: Investment Type State Investment Pool Fair Value $ 20,823 Investment Maturities Less than 1 Year $ 20,823 32

37 STATE OF NEW MEXICO EL VALLE DE LOS RANCHOS WATER & SANITATION DISTRICT Notes to Financial Statement June 30, 2016 NOTE 3. DEPOSITS AND INVESTMENTS, continued The New MexiGrow Local Government Investment Pool s (LGIP) investments are valued at fair value based on quoted market prices as of the valuation date. The LGIP is not SEC Registered. The New Mexico State Treasurer is authorized to invest the short-term investment funds, with the advice and consent of the State Board of Finance, in accordance with Section I through P and Section A and E NMSA The pool does not have unit shares. Per Section F, NMSA 1978, as of the end of each month all interest earned is distributed by the State Treasurer to the contributing entities in amounts directly proportionate to the respective amounts deposited in the fund and the length of time the fund amounts were invested. Participation in the pool is voluntary. Interest Rate Risk and Credit Rating-Investment in State Treasurer s LGIP Interest rate risk is the risk that interest rate variations may adversely affect an investment s fair value. The prices of securities fluctuate with market interest rates and the securities held in a portfolio will decline if market interest rates rise. The portfolio s weighted average maturity (WAM) is a key determinant of the tolerance of a fund s investments to rising interest rates. The District s investment at June 30, 2016 includes the following: State Treasurer s Local Government Investment Pool AAAm, 44 day WAM (R) $20,823. Reconciliation of Cash and Temporary Investments Business-type funds - Balance Sheet Cash and cash equivalents per Exhibit A-1 $ 409,864 Less investment with State of New Mexico Treasurer (20,823) 389,041 Add outstanding checks and other reconciling items 2, ,884 Less petty cash (300) NOTE 4. RECEIVABLES Bank balance of deposits $ 391,584 Receivables as of June 30, 2016, are as follows: Property taxes $ 249,763 Customer Receivables 30,231 Grants Receivables 129,256 Other Receivables 19,605 Total $ 428,855 33